It’s all about the power — and the cronyism.
Almost exactly one year has passed since Donald Trump declared, “I am a Tariff Man.” Uncharacteristically, he was telling the truth.
At this point I’ve lost count of how many times markets have rallied in the belief that Trump was winding down his trade war, only to face announcements that a much-anticipated deal wasn’t happening or that tariffs were being slapped on a new set of products or countries. Over the past week it happened again: Markets bet on an outbreak of trade peace between the U.S. and China, only to get body slammed by Trump’s declaration that there might be no deal before the election and by his new tariffs on Brazil and Argentina.
So Trump really is a Tariff Man. But why? After all, the results of his trade war have been consistently bad, both economically and politically.
I’ll offer an answer shortly. First, however, let’s talk about what the Trump trade war has actually accomplished.
A peculiar aspect of the Trump economy is that while overall growth has been solid, the areas of weakness have come precisely in those things Trump tried to stimulate.
Remember, Trump’s only major legislative accomplishment was a huge tax cut for corporations that was supposed to lead to a surge in investment. Instead, corporations pocketed the money, and business investment has been falling.
At the same time, his trade war was supposed to shrink the trade deficit and revive U.S. manufacturing. But the trade deficit has widened, and manufacturing output is shrinking.
The truth is that even economists who opposed Trump’s tax cuts and tariffs are surprised by how badly they’re working out. The most commonly given explanation for these bad results is that Trumpian tariff policy is creating a lot of uncertainty, which is giving businesses a strong incentive to postpone any plans they might have for building new factories and adding jobs.
It’s important to realize that Trumpian protectionism wasn’t a response to a groundswell of public opinion. As best as I can tell from the endless series of interviews with white guys in diners — who are, we all know, the only Americans who matter — these voters are driven more by animosity toward immigrants and the sense that snooty liberals look down on them than by trade policy.
And public opinion seems to have become far less protectionist even as Trump has raised tariffs, with the percentage of Americans saying that free trade agreements are a good thing as high as it’s ever been.
So Trump’s trade war is losing, not gaining, support. And one recent analysis finds that it was a factor hurting Republicans in the 2018 midterm elections, accounting for a significant number of lost congressional seats.
Nevertheless, Trump persists. Why?
One answer is that Trump has long had a fixation on the idea that tariffs are the answer to America’s problems, and he’s not the kind of man who reconsiders his prejudices in the light of evidence. But there’s also something else: U.S. trade law offers Trump more freedom of action — more ability to do whatever he wants — than any other policy area.
The basic story is that long ago — in fact, in the aftermath of the disastrous Smoot-Hawley tariff of 1930 — Congress deliberately limited its own role in trade policy. Instead, it gave the president the power to negotiate trade deals with other countries, which would then face up-or-down votes without amendments.
It was always clear, however, that this system needed some flexibility to respond to events. So the executive branch was given the power to impose temporary tariffs under certain conditions: import surges, threats to national security, unfair practices by foreign governments. The idea was that nonpartisan experts would determine whether and when these conditions existed, and the president would then decide whether to act.
This system worked well for many years. It turned out, however, to be extremely vulnerable to someone like Trump, for whom everything is partisan and expertise is a four-letter word. Trump’s tariff justifications have often been self-evidently absurd — seriously, who imagines that imports of Canadian steel threaten U.S. national security? But there’s no obvious way to stop him from imposing tariffs whenever he feels like it.
And there’s also no obvious way to stop his officials from granting individual businesses tariff exemptions, supposedly based on economic criteria but in fact as a reward for political support. Tariff policy isn’t the only arena in which Trump can practice crony capitalism — federal contracting is looking increasingly scandalous — but tariffs are especially ripe for exploitation.
So that’s why Trump is a Tariff Man: Tariffs let him exercise unconstrained power, rewarding his friends and punishing his enemies. Anyone imagining that he’s going to change his ways and start behaving responsibly is living in a fantasy world.
A Single Scandal Sums Up All of Trump’s Failures
Many of the tales of controversy to emerge from the Trump administration have been abstract, or complicated, or murky. Whenever anyone warns about destruction of “norms,” the conversation quickly becomes speculative—the harms are theoretical, vague, and in the future.
This makes new Washington Post reporting about President Donald Trump’s border wall especially valuable. The Post writes about how Trump has repeatedly pressured the Army Corps of Engineers and the Department of Homeland Security to award a contract for building a wall at the southern U.S. border to a North Dakota company headed by a leading Republican donor.
The story demonstrates the shortcomings of Trump’s attempt to bring private-sector techniques into government. It shows his tendency toward cronyism, his failures as a negotiator, and the ease with which a fairly primitive attention campaign can sway him. At heart, though, what it really exemplifies is Trump’s insistence on placing performative gestures over actual efficacy. And it is a concrete example—almost literally—of how the president’s violations of norms weaken the country and waste taxpayer money.
The Post reports: In phone calls, White House meetings and conversations aboard Air Force One during the past several months, Trump has aggressively pushed Dickinson, N.D.-based Fisher Industries to Department of Homeland Security leaders and Lt. Gen. Todd Semonite, the commanding general of the Army Corps, according to the administration officials, who spoke on the condition of anonymity to discuss sensitive internal discussions.
It may be a not-very-subtle sign of the frustration in the Army that the news leaked to the Post the same day that Semonite was called to the White House and Trump once again pressed him.*
How Special Interests Hide the True Costs of Tariffs
Consider how easy it was for Mr. Trump to get a 25 percent tariff on steel imports. His administration simply concocted a fanciful national-security narrative about why the steel industry needed protection from foreign steel imports — this despite the industry’s enjoying a 70 percent share of the United States steel market and despite the Department of Defense finding no national-security harm from global steel imports.
.. For example, for the projected impact of the steel tariffs, numbers produced by the Commerce Department show that they may increase employment in the metals industry by 14,000 jobs. But the report also says that a significantly larger number of jobs will be destroyed, as a result of these tariffs, in industries downstream from metal production.
.. Under the current system, if Commerce Secretary Wilbur Ross decides to protect his friends and business interests in the steel industry, he can ignore the damage that his own data show the tariffs will inflict on some of the 6.5 million workers in America’s steel-consuming industries. His sole lawful obligation is to demonstrate that the economic fortunes of the 140,000 steel employees will be promoted by the tariffs.
.. when I.T.C. commissioners make their determinations in such cases, they’re actually forbidden by statute from considering the impact of these so-called trade remedies on downstream industries — those consumers of goods and services hit by the tariffs.
.. The good news is that there’s an easy fix: Change the statutes so that commissioners are required to consider the effects of trade restrictions on downstream industries and consumers.
.. Today, steel executives have an iron grip on the White House thanks to the deep ties of the president’s advisers to the industry.
- Mr. Ross made his fortune buying and selling steel companies and was sitting on a steel company’s board until his confirmation as commerce secretary.
- Robert Lighthizer, a private lawyer who represented the steel industry for years, is now the United States trade representative.
- The upper levels of both the Office of the United States Trade Representative and the Commerce Department have predictably been populated by other individuals with close ties to Big Steel. And the
- trade adviser Peter Navarro’s 2012 documentary, “Death by China,” was funded by one of the top beneficiaries of these tariffs — the steel producer Nucor.
This cronyism explains how the steel industry is directly involved in deciding which companies do or don’t receive exemptions from the steel tariffs and why so few exemptions have been granted.
How Corruption and Cronyism in Banking Fueled Iran’s Protests
Before long though, Caspian stopped allowing withdrawals. After three months, it stopped paying interest. Finally, in May, it shut its doors for good — becoming one of the largest in a long series of failures of Iranian financial institutions in recent years.
.. The outpouring of anger was directed not only at President Hassan Rouhani, who won re-election promising to revitalize the economy, but also the country’s supreme leader, Ayatollah Ali Khamenei.
.. The cascade of defaults, economists say, was not just the result of risky banking practices, but also a case study in official corruption — a major reason Iranians found their losses so infuriating. Adding to their outrage, Iranian officials made a series of statements blaming the victims for not being more careful with their money.
.. Many of the institutions, including those that merged in 2016 to form Caspian, were allowed to gamble with deposits or run Ponzi schemes with impunity for years, in part because they were owned by well-connected elites:
- religious foundations, the
- Islamic Revolutionary Guards Corps or
- other semiofficial investment funds
in the Iranian state.
.. as many as hundreds of thousands of people lost money because of the collapsing financial institutions. Iranians have a term for the growing class of victims: “property losers,” or “mal-baakhtegan” in Persian.
.. regulators have quietly steered many of the companies into mergers with larger banks to try to absorb their losses, but that has created a worsening problem of bad loans and overvalued assets throughout the banking system.
.. Economists say that as many as 40 percent of the loans carried on the books of Iranian banks may be delinquent.
.. Even Iran’s supreme leader, Mr. Khamenei, has acknowledged responsibility for the growing number of victims of “problematic financial institutions.”
“These appeals must be dealt with and heard out,” he said this month. “I myself am responsible; all of us must follow this approach.”
.. The corruption underlying the bank failures has long been an open secret
.. The loans totaled $1.9 billion, and almost all appeared to be held by well-known insiders.
.. Among them was Hossein Hedayati, a business tycoon and former member of the Revolutionary Guards, whose swift rise was so conspicuous that websites speculated about the sources of his sudden wealth. The document released by the lawmaker showed that Mr. Hedayati owed $285 million, and in a television program discussing the loan, another lawmaker, Mohammad Hassannejad, accused Mr. Hedayati of using a series of front companies to swing the loans and hide his role.
Mr. Hedayati dialed in to the program, sputtering with rage; he denied borrowing from Sarmayeh and threated to “sue everyone,” but has yet to follow through on the threat.
.. Clerics controlled religious foundations, called bonyads, that acquired commercial businesses. The largest of these, under the supreme leader, now makes up “15 to 20 percent” of the Iranian economy
.. All the semiofficial holding companies have major advantages over private businesses in favorable access to capital, tax exemptions and political connections.
.. But under a conservative president, Mahmoud Ahmadinejad, who came to power in 2005, semiofficial bodies controlled by clerics, the Revolutionary Guards or their allies dominated the newly private financial sector.
.. the Revolutionary Guards controlled at least two, while the army, the police, the municipality of Tehran and a giant religious foundation close to the Guards controlled the others.
.. the largest were usually run by individuals close to the same ruling elite
.. They say that made it almost impossible for even the best-intentioned regulators to police the banks.
.. The outsize returns promised by the banks and financial institutions lured capital that might better have gone to more productive uses
.. leaks about the high salaries of executives at state-run companies
.. The government has since tried to block the use of Telegram in Iran